The Tape Today: Buyers Are Back, For Now
futures are jumping this morning, with the SPY up nearly 3% from its open. The VIXY just dumped over 12% intraday, which tells you all you need to know about the mood: fear is off the table, and everyone's piling back in. Of the 23 mega-caps I'm tracking, 17 are up, 6 are down, and nothing's flat. That's a strong bid.
Where the Crowd Gets it Wrong: The Gamma Trap
Here's where it gets interesting, and where most people are missing the plot. We're staring down strong negative gamma at around $-2.5 billion. For the uninitiated, negative gamma means dealers are selling into strength and buying into weakness to hedge their books. When the market moves up hard, they're selling futures and stocks to rebalance, which can put a cap on the rally. When it falls, they're buying, which can put a floor under it. It creates chop, and it means the easy part of this move is behind us. Chasing here is paying up for someone else's entry, and you're buying into dealer selling pressure.
My Read: Lean Bullish, But Watch Your Back
I'm leaning bullish on the tape today, but with a significant caveat. The immediate sentiment is clearly positive, and the breadth among the big names supports a higher open. However, that negative gamma is a real concern. It's not a brick wall, but it's a speed bump that could turn into a wall if the momentum falters. You're not going to see a clean, straight shot higher if dealers are forced to sell into every uptick.
I'd want to see this rally hold through the morning, specifically watching how it handles any initial selling pressure after the open. If we see a quick dip bought back up with conviction, that's a good sign. But if the market struggles to push through key overhead levels, or if the initial pop fades quickly, that negative gamma will start to assert itself, turning what looks like a clear run into a grind, or worse, a reversal.
What I'm Watching at the Open
- Initial reaction: Does the market follow through on futures strength, or does it fade?
- Volume: Is the buying conviction backed by real volume, or is it thin air?
- Key levels: Watch for how the SPY interacts with its overnight highs. A failure to hold those could signal trouble.
Don't get complacent just because the screens are green. This tape has a way of punishing the overly confident. The setup favors a higher open, but the lurking gamma structure means you need to be nimble. I'm taking the bullish side, but I'll flip fast if this rally can't chew through the dealer's supply.